Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Third Quarter Fiscal 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions on how to ask a question will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn over the conference to our host, Ms. Corinna Van Der Ghinst. Please go ahead.

Good morning, and thank you for joining Ralph Lauren’s third quarter fiscal 2020 conference call. With me today are Patrice Louvet, the Company’s President and Chief Executive Officer and Jane Nielsen, Chief Operating Officer and Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today’s call, we will be making some forward-looking statements within the meaning of the Federal Securities Laws, including our financial outlook. Forward-looking statements are not guarantees. And our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning’s earnings release and to our SEC filings that can be found on our Investor Relations website. And now, I will turn the call over to Patrice.

Thank you, Cory. Good morning everyone and thank you for joining today's call. We continue to make strong progress on our Next Great Chapter plan with third quarter results, ahead of our overall expectations, including better-than-expected revenues, operating margin and double-digit EPS growth. Over the important holiday season, our teams consistently executed across each of our strategic priorities, enabling us to elevate our brand and deliver for our consumers across every touch point. The solid foundations we've put into place to reposition and elevate our brands, helped to drive positive comp growth across all three regions, excluding the impact of Hong Kong this quarter. We were also encouraged by AUR growth of 6% as we invest in brand elevation through our products, marketing, distribution and unique consumer experiences. At the same time, we continue to execute key initiatives to stabilize our North America business against an evolving retail landscape. As I've shared before, the three principles underlying this work include, putting the consumer at the center of everything we do; elevating the brand across all consumer touch points and balancing growth and productivity. And we are doing all of this while managing through volatile industry dynamics, including the recent coronavirus outbreak, which we are actively monitoring. Our top priorities are to keep our employees and consumers safe and to heed the advice of local and international health authorities. The situation is a dynamic one and we will continue to assess the implications for our business across retail, corporate and our supply base. Our thoughts are with the many impacted by this virus. During the third quarter, we drove our performance across the five strategic priorities that we laid out as part of our five-year plan to deliver long-term, sustainable growth and value creation. These include, first, win over a new…

Thank you, Patrice and good morning everyone. Our third quarter results demonstrate solid execution of our strategy through this holiday season and our team's agility and navigating a dynamic global, geopolitical and retail environment. We delivered top and bottom-line growth and good progress across key metrics, including 6%, AUR growth, double digit growth in digital commerce and growth and operating margin expansion, coupled with solid inventory control. Third quarter revenues increased 1% on a reported basis and 2% in constant currency. Every region posted positive revenue growth, driven by mid-single-digit constant currency growth in Europe and Asia despite the ongoing headwinds in Hong Kong, as well as slight growth in North America. Excluding the impact of Hong Kong, total company topline grew 2.5% in constant currency and every region delivered positive comps as we work to elevate our brand across every consumer touch point, drive product quality, reduce promotional levels and enhance our digital presence. Adjusted gross margin was up 60 basis points in the third quarter, both on a reported and constant currency basis. Gross margins benefited from AUR growth of 6% on better pricing, lower promotions and elevated product mix, along with favorable channel and geographic mix, these more than offset investments in product elevation and sustainability and diversification of our supply chain. Looking ahead, we are encouraged by the early results of our fall pricing actions and expect our AUR strength to continue through the rest of the year, driving our full year expectation of low single digit AUR growth for fiscal 2020. Our inventory positions for both our direct-to-consumer and wholesale businesses are current and well controlled coming out of this holiday season. And we remain focused on managing our inventories with discipline and leveraging our supply chain agility and responsiveness. Adjusted operating margin in the…

[Operator Instructions] The first question comes from Adrienne Yih with Barclays Capital.

Good morning and congratulations on continued progress in a very tough environment.

Good morning, Adrienne. Thank you.

Good morning. So Patrice, I wanted to -- you gave such great color on sort of the AUR and what was driving the pricing increases. It's accelerated in the back half of the year from the first half despite the tougher compares. Obviously, you talked about where you were taking selective price increases. What have you learned about the price elasticity particularly in North America? And does this give you confidence in your ability to continue to take pricing up over the next year or so? Thank you.

Great. Thank you for your question. Well, let me just step back a little bit to kind of give you the overall with how we're thinking about this. The first thing I would say is, brand elevation is really at the core of our strategy, right and AUR is obviously then a key component to that. The second point on AUR is we have four drivers for AUR that we're working on. One is pulling back on promotional support. And actually in the last quarter, we reduced our promotional pressure. The second is leveraging product mix and you saw us invest in categories that had higher AUR like outerwear and fleece. The third is obviously leveraging geographic and channel mix. And then the final point is indeed targeted pricing. Now we've actually started this journey of taking target pricing in the context of this broader AUR strategy. In international I'd say past 18, 24-months and we've been pleased with the results that we've achieved there. But it's really important to understand that it isn't just pricing in isolation. It's the result of work that we've done on elevating the brand across all the touch points. The work we've done on inventory, on product, on brand from distribution that enables that. We are at a stage now where we think the conditions are set for us to execute that in North America. So as you mentioned we now have about a quarter under our belt in the factory outlet channel which is where we started. We're encouraged both by the way the teams have executed, they've done a terrific job, and the consumer response across the board because we saw significant AUR growth. Now AUR growth in isolation doesn't make any -- growth that needs to drive comps and we're pleased with the 4% comp growth that we achieved in North America. In terms of then expanding this across the ecosystem for North America the plan is actually to do that now. So, literally as we speak, we are implementing pricing for the consumer on the floors both in our full-price stores that have wholesale, leveraging the learnings that we've picked up in our execution in factory outlets. And we're at the very beginning of this journey we were quite encouraged by what we've seen so far. And to the point on your guidance long-term relative to our expectations for AUR growth, we continue to expect AUR to grow low to mid-single digits throughout the lifetime of the plan.

Thank you. The next question comes from Michael Binetti with Credit Suisse. Your line is open.

Hey, guys. Let me start with congrats on a really nice quarter and what sounds like a tough holiday.

Hi, Michael.

Hi, Michael.

I want to ask you in North America wholesale down 8% -- was a bigger decline than we've seen since maybe fourth quarter last year and you were going against big off price correction in the fourth quarter last year, lapping a negative 10. I kind of -- if I add this to you know some comments you just made on now starting to raise prices in wholesale. I am trying think how you guys think about the North America wholesale numbers going forward from here obviously the compare gets easier, you’ve got some pricing but then, due you think we are a point where we can -- you can see turning a corner on North America wholesale turning positive yet at some point during the course of fiscal 2021? And then I also want to ask you about how you're thinking through all the dynamics you just laid out about margins for next year. It sounds like you're happy with how the increased marketing is going. Obviously, the results are there on the top-line. But I'm wondering how your thinking about gross margin as well for next year, which has been a nice contributor for several years now. I mean you did say AUR should keep moving in the right place you're happy with ticket. So, I'm wondering if we can -- if you still think the gross margin and SG&A dynamics we've seen in the first two years the plan should be similar next year.

Yes, Michael, it's Jane. So, let me answer the AUR gross margin question first and then I'll go to North America wholesale. So, we're really encouraged with we saw in North America in Q3 from a gross margin standpoint, led by the AUR increases with comp growth. Those AUR increases really reflected our ability to both continue our discount reduction journey. We are starting to see a nice contribution from product mix and the elevation of products. Better assortments, better rebalancing in the core the things we've been talking about. So early stages, but we're starting to see that in this quarter. And then the consumer response to, the ticket increases were also very positive. So, that's what's giving me confidence, in continued gross margin expansion. Obviously, we've guided that for Q4. But I do think that the things that we've called out as durable, reductions in promotions, targeted consumer value-oriented price increases, product mix benefits. And then, some tailwind benefits from geographic and channel shifts, those things are durable. And we're able to manage some of the cost inflation. And tariff impact through the work -- through working those levers. So, I continue to remain optimistic that gross margin is a driver for us today. Obviously, we have guided to for the future. But it's also durable to the plan. Now the magnitude will have -- we're pretty clear on our guidance. But I'm encouraged and I think its strength for us. So, good progress there. Then, if I turn to your North America wholesale question, I would tell you that again off-price was down, I would say meaningfully more than our full-price business, so double-digit decline last year, double-digit decline this year. And again, the flow of off-price is related to excess flow. Our inventory is clean. And so we're really I think looking at that channel from a strategic standpoint than where it should be which, is the good partners to us. They're an opportunistic way for us to liquidate excess. And that's what you're seeing come through. In terms of the timing of North America wholesale covering, we know that that will take some time, right? So what is encouraging to us is that we're on the right track, strong comp growth in DTC in North America, this quarter. The underlying trend is encouraging. Well, I still think quarter-by-quarter there will be some choppiness, the underlying trend is encouraging and we believe that we're taking the right actions wholesale, as Patrice called out in terms of rebalancing assortments, focusing on sell-out which we did see improve, this quarter. And we're starting some targeted marketing within the channel, that's showing some very early signs of positive trends. So, we're pleased with that. And we're overall pleased with our marketing investments. And the way they're enabling our brand elevation and price increases. So, still encourages how that will flow through on OI margin.

Next question, please.

Thank You. The next question comes from Matthew Boss with JPMorgan.

Great, thanks and congrats on a nice quarter.

Thanks, Matt.

Maybe Patrice and I know this is somewhat higher level. But, as we think about differentiated versus undifferentiated retail, I guess maybe what inning overall do you see the brand today in North America? So, maybe if you could touch on wholesale distribution, how you feel about your existing department store doors, maybe the number and the quality of the doors that you're in. I know Jane just touched on off-price. And then at retail, where you see the opportunity from a footprint perspective in terms of what you have today and the opportunity that you have going forward?

Jane is very happy that we're back to baseball analogies. So listen, on the differentiation front, I think we're in the very early innings in North America actually, right. So, if you'd ask me for a number, I'd probably say two out of nine. I think we see opportunities to actually in the context of the brand elevation strategy to increase our presence in higher end wholesale where we see opportunities both in North America and actually around the world. We're also in kind of the current wholesale footprint you know we've reduced it significantly already, right. We're down 25% from where we were about three years ago to make sure that the brand shows up in the right place. We continue to assess the locations on a very regular basis working closely with our partners. So, this is also a dynamic process. As far as DTC is concerned, we believe we have opportunities obviously to continue to fuel our dot-com operations right, which is a very important factor of the DTC part of our business. And also similar to our thinking internationally with the introduction of Polo boutiques, we believe there is an opportunity in North America to expand our DTC footprint smaller format stores. So that won't happen tomorrow morning. But as we look at kind of the next few years and where we want to take the brand and how we want to drive interactions with consumers across the country, we do believe there are opportunities to expand the footprint so that the brand is better represented in a more dispersed way across the entire country, all guided by our brand elevation strategy, right. That's really the filter that we use to decide where we should be and then how do we ensure the differentiation is very clear by channel for the consumer both online and brick-and-mortar, so that he or she knows exactly what to get in which location and how the brand will show up differently based on the different environments.

Next question please.

Thank you. The next question comes from Omar Saad with Evercore ISI.

Thanks. I’d add my congratulations, nice quarter guys. I appreciate all the information.

Thanks Omar.

I wanted to ask a follow-up on the sales guidance. You obviously a really strong quarter your comps accelerated. You came in above your number. You kind of kept the full year guidance the same. Are there any timing issues going on? Especially with all the AUR upticks, it feels like an easier comparison in the fiscal fourth quarter. It feels like there could be some opportunity for revenue upside there. Is there something I'm missing? And then, a follow-up on the coronavirus and maybe it's related. We're hearing stories of double-digit million population cities that are like ghost towns right now and some pretty significant comp declines. Wondering if you're seeing any meaningful impact in your business in real time? And is there anything on the supply chain side we should think about in terms of disruption there potentially? Thanks.

All right. Why don't I unpack your question in terms of the guidance first and in terms of revenue upside? What we are seeing, and I think we called it out in the script is obviously Hong Kong will have a more meaningful impact as we head into the fourth quarter. We've seen travel bookings deteriorate from the third to the fourth quarter and this is obviously a big quarter for Hong Kong, given that it was a Lunar New Year. And so we called out that we had about a three-point impact to Asia comp in the third quarter that leads to about a five-point impact in the fourth quarter. So, that's one factor this going into that. And then we called out some digital commerce that we had a very big stronger-than-expected digital commerce. As we look at that and underneath the covers of that in both Europe and in North America, what we saw is that we sold out stronger at full price. We had less inventory seeding clearance in the fourth quarter. That's a good quality of sales move and we're pleased with this. And so, you'll see some of that sitting on our digital comps in the fourth quarter as we move forward. We also have some -- given the shorter holiday season. We move to fulfill demand to make sure consumers had a good service experience. And we'll have slight -- we'll have some more process returns in the fourth quarter and we were less promotional at the end of the third quarter. So, those are some things that are sitting in digital. So those two things are the biggest things that are guiding our fourth quarter revenue call.

And then on the coronavirus and obviously, it's a highly dynamic situation, right? But if we take a snapshot, today for us in China, we have about half of our fleets closed. So about -- we are about 110 stores, so roughly half of that is closed as we speak today. Obviously, we monitor that very closely. As far as supply chain is concerned, well first the other thing I would say relative to our business penetration in China just for the benefit of the whole group is, while the China opportunity is a massive growth opportunity for us to some extent, it's a blessing to be underpenetrated today because our business today China represents less than 4% of the total company business. Now, we still are very bullish about our ability to win long-term in that region and very excited about what we can do there. On the supply chain front, I'd say same thing on a very dynamic situation. We have been working as you know over the past year, two years to diversify our supply chain, so that we're less dependent on one market, less dependent on China. So we have a greater ability to leverage a footprint that's much broader and much more flexible. We're in the middle of the Lunar New Year vacation. We'll need to see and which has been extended by week. We'll need to see how employees return to the various factories post the vacation. So we're watching it. We are working on being as agile as possible and we'll make sure we make the best of the situation that we're dealing with. The priority in all of this right because this is a human -- we can't lose sight of the human dimension of all. This obviously is to make sure that our employees are safe, our consumers are safe and that we follow very closely the guidance both from the local and the global authorities on this health crisis.

Next question?

Thank you. The next question comes from Erinn Murphy with Piper Sandler.

Great, thanks, good morning. Just a couple of questions for me. I guess Patrice, just on the speed to market opportunities you gave that 16-day example. Could you just talk a little bit more about where that product was produced? And as you assess the opportunity, how repeatable is this process? And then, just a follow-up for Jane on the North American wholesale, can you talk a little bit more during the quarter of what did you see with Men's Polo versus Lauren within the full price business? Thank you.

So Erinn, I just took note of that example. That's actually really good. You know -- it was a pilot exercise for us. It was a sweat shirt that we developed with one of our wholesale partners. And we did execute it from ideas to delivery to the partner in 16 days. We're not going to move our entire supply chain to 16 days. What's key our lens is to understand what is the timing required to be well-positioned to win a specific category, in a specific geography, in a specific channel? So we still have kind of our nine, six, three-month lead-times. And then there are some projects where we want to have this ability to react in the span of days. The specific project Erinn so sweatshirt I believe manufactured in Mainland China. And something that's replicable which is why we shared it as an example. It's a pilot, but I think it's an indication also that our organization is becoming more agile, more aggressive in terms of how we manage time lines and also more creative. So, I think you're going to continue to see from us faster lead-times not just for the sake of lead-times also just to understand what's required to win in the marketplace.

And Erinn, I would just add that we remain confident in the -- in achieving the goal that we laid out at Investor Day that we will get to more than 50% of our product on a six-month or less lead-time and we're making great progress on some of our key categories in moving almost 80% of our quarter on to six months or less and even working on faster track. So great progress by our supply chain in that area. And then to the second part of your question, regarding what we're seeing -- what we saw on Polo and the Lauren brands. We did see across the company that the Polo brand really drove our -- and we saw -- and it's specifically in North America wholesale we saw the Polo brand be stable and a driver for us. The Lauren brand -- we're seeing some positive times, but they're very early based on the marketing that Patrice called out and some targeted work that we're doing with our wholesale partners that one makes us believe that the Lauren opportunity is an opportunity in North America wholesale that our consumer is still there, and that when we assort into the right categories with the right product quality and right consumer value that the consumer will respond. And so we saw some encouraging trends there. I'd say too early to call the turnaround. It will take some time but it's an encouraging sign.

Okay. Next question, please.

Thank you. The next question comes from Alex Walvis with Goldman Sachs.

Good morning. Thanks so much for taking the question.

Good morning, Alex.

You commented on some pretty strong performance in the outerwear segment through the quarter which was a tough category for some others. So some good progress there. I wonder if you could share some comments on the other underdeveloped categories. And you mentioned denim was strong. Any comment on where we are in the progression for accessories, but where -- wear to work and so forth?

Sure. Yes, we were actually really encouraged by the growth on outerwear. And frankly, I'm becoming even more bullish on the size of price on that part of the business as we build capabilities in-house. So, good momentum on outerwear. Denim also performed well for us. And that actually contributed to the solid trends, on our men's business. I think the team is doing a very good job, in terms of understanding the customer we want to serve, developing product that resonates, and then finding a way to communicate and execute it in-store, in a way that really connects with the consumer. We're making good progress on wear-to-work. Probably the key thing to highlight here is the way we are complementing our line on -- particularly on Polo Women's. And some of the work that's also underway on Lauren, to really make sure that we have the right offering, to meet that kind of wear-to-work consumer need, so good progress there. And if you remember, this is an oversimplified. But we really want to shift to being a kind of seven day brand solution as opposed to maybe two or three days, a week, both for men and women. So I'm encouraged by the progress we're making there. As far as footwear and accessories, so we had talked about the fact that Investor Day that footwear and accessories progress and impact would be more back loaded in the five-year program, which is why you're seeing further acceleration on outerwear and denim first. But we are making good progress on footwear and accessories. Job one, first is really building capability right, working with Ralph, and having the right design talent both on bags and on shoes. We brought some extraordinary talent from key players in this space that have joined us over the past year, year and a half. So, that we make sure we've got people that really understand fundamentally, how these categories work. And then, now working on bringing these products to life, in the market, these things take a bit of time. So, I expect the impact to be most visible in the outer years of the plan. But we're starting to see some encouraging signs on different parts of the portfolio, that give us confidence that we're making, the right progress and that we will see the benefits that we expect from those two categories, as well.

Last question please, Angela.

Thank you. Our final question comes from Rick Patel with Needham & Co.

Good morning guys. Thanks for squeezing me, and I'll add my congrats as well. I was hoping you could provide some more color on Europe wholesale. You reported some nice growth there despite the negative impact of some timing shifts. Is there anything to call out aside from digital wholesale accounts? And how sustainable is this growth as we think about the run rate for this segment?

I think we're encouraged. We've been consistently calling out our Europe wholesale underlying trend is being in the range of what we called out for the long-term sort of in that low to mid-single-digit growth. Obviously, our pure-play partners are leading that growth. But we're also encouraged with what we're seeing in our core bricks -- more traditional bricks-and-mortar partners in terms of their trajectory both on a comp basis. So store -- same-store sales growth within those areas and some distribution expansion that we're seeing on a more regional basis with partners that we've had for from a number of years, so that's very encouraging to us. I think we see this as durable growth. And we're encouraged by the progress that we're making, and where the brand sits within the wholesale European ecosystem. I think it's elevated. The pricing is accretive to our overall portfolio. And our inventories are in good shape there. So, we're very pleased with the progress in that business.

Good. So thank you everyone for joining us today. We look forward to sharing our fiscal year end results and fiscal year 2021 guidance with you on our next call in early May. Between now and then, have a great time. Thank you. Bye.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.